Category Archives: Business

Indonesian president Joko “Jokowi” Widodo has instructed ministers to keep fuel prices stable over the next two years, said Energy Minister Ignasius Jonan, which would, in effect, continue a controversial fuel subsidy scheme that analysts say has negatively impacted growth and the environment.

The Ministry said it would increase the per-liter subsidy for diesel and regular petrol from 500 Indonesian rupiah (about $0.35) to 700-1000 rupiah ($0.49-$0.70) while keeping pump prices unchanged.

The measure indicates how protectionist measures have been hard to shake for the initially reform-minded Jokowi, who made several inroads against subsidies in 2014 and 2015.

Meanwhile, the rupiah continues to sink in the global market, due in part to Indonesia’s widening current-account deficit. On Monday, Credit Suisse said “the rupiah is among the most vulnerable emerging market currencies in Asia.”

Political Context

“Subsidizing fuel does tend to exacerbate currency depreciation, because the bulk of Indonesia’s petrol is imported,” said Kevin O’Rourke, a veteran Indonesian political analyst. “Fixed retail prices cause over-consumption, as the price remains the same even though the currency is declining; ordinarily, what should happen is that petrol prices rise as the currency declines, thereby discouraging consumption of the imports.”

In 2014, the year he was elected president, Jokowi raised fuel prices and capped the diesel subsidy within months of taking office. Last year he also pushed to phase out electricity subsidies, but was already facing pushback from consumers amid rising inflation. Consumer expectations are perhaps looming larger now that he is in the latter half of his term, and gearing up for a competitive reelection campaign in 2019.

“Widodo hopes to keep retail prices stable through the April 2019 election, despite the gap between the Indonesia Crude Price (ICP) and the budget’s oil price assumption,” said O’Rourke. “Ostensibly, this subsidization aims to preserve consumer purchasing power; in reality, Widodo clearly hopes to avoid sacrificing popularity ahead of his re-election bid.” Ironically, he said, artificially low fuel prices end up creating inflation anyway, since people tend to then over-consume imported petrol, which further sinks the rupiah.

The subsidy may also imperil Indonesia’s public transport ambitions, said Jakarta-based energy policy researcher Lucky Lontoh. “Jokowi’s massive infrastructure development actually was started with a fuel subsidy reduction back in 2014, which freed some fiscal space needed to fund the infrastructure projects. More subsidies means the government will have less money to fund other development activities.”

Environmental Impact

Fuel subsidies are considered a regressive form of spending because their benefits are captured by people wealthy enough to drive and own vehicles, said Paul Burke, an economist at Australian National University who focuses on energy and transportation.

But they also aggravate traffic jams — including in cities like the notoriously traffic-choked Jakarta — air pollution, and oil dependence, said Burke, citing a recent paper he authored on the topic.

Burke said Indonesia’s substantial progress on electricity subsidies are a hopeful sign and possible roadmap for fuel subsidy reform.

“Over recent years, Indonesia has achieved substantial success in reducing electricity subsidies, by increasing some electricity tariffs to cost-reflective levels,” he said. “Poor households are among those that have been exempted from the reforms… [which] have made an important contribution to improving the efficiency of Indonesia’s electricity use. As electricity prices have increased, electricity use has shifted to a lower-growth trajectory. This has helped Indonesia to avoid the need to build too many expensive new power stations.”

In the fuel realm, Burke said a reform option that economists often suggest is a “fuel excise,” which is a tax on the sale of fuel and the opposite of a fuel subsidy. “Fuel excise would be a progressive form of revenue raising, would help to reduce pollution and traffic jams, and would help Indonesia reduce its budget deficit and fund key priorities.”

Fossil fuel subsidies have existed in Indonesia since its independence in 1949 and, per the International Energy Agency, accounted for nearly 20 percent of fiscal expenditure by the 1960’s. In that context, the reforms of modern-day Indonesia and the Jokowi administration are not inconsiderable: by 2014, about 3 percent of the GDP was spent on fossil fuel subsidies, and by 2016, after Jokowi’s initial spate of reforms, it was less than 1 percent.

But, due to consumer expectations, the political climate, and the unique challenges of the fuel industry — Indonesia both has a lot of natural resources itself and a burgeoning consumer class — the current subsidy apparatus may prove sticky for the near future. …

Indonesian president Joko “Jokowi” Widodo has instructed ministers to keep fuel prices stable over the next two years, said Energy Minister Ignasius Jonan, which would, in effect, continue a controversial fuel subsidy scheme that analysts say has negatively impacted growth and the environment.

The Ministry said it would increase the per-liter subsidy for diesel and regular petrol from 500 Indonesian rupiah (about $0.35) to 700-1000 rupiah ($0.49-$0.70) while keeping pump prices unchanged.

The measure indicates how protectionist measures have been hard to shake for the initially reform-minded Jokowi, who made several inroads against subsidies in 2014 and 2015.

Meanwhile, the rupiah continues to sink in the global market, due in part to Indonesia’s widening current-account deficit. On Monday, Credit Suisse said “the rupiah is among the most vulnerable emerging market currencies in Asia.”

Political Context

“Subsidizing fuel does tend to exacerbate currency depreciation, because the bulk of Indonesia’s petrol is imported,” said Kevin O’Rourke, a veteran Indonesian political analyst. “Fixed retail prices cause over-consumption, as the price remains the same even though the currency is declining; ordinarily, what should happen is that petrol prices rise as the currency declines, thereby discouraging consumption of the imports.”

In 2014, the year he was elected president, Jokowi raised fuel prices and capped the diesel subsidy within months of taking office. Last year he also pushed to phase out electricity subsidies, but was already facing pushback from consumers amid rising inflation. Consumer expectations are perhaps looming larger now that he is in the latter half of his term, and gearing up for a competitive reelection campaign in 2019.

“Widodo hopes to keep retail prices stable through the April 2019 election, despite the gap between the Indonesia Crude Price (ICP) and the budget’s oil price assumption,” said O’Rourke. “Ostensibly, this subsidization aims to preserve consumer purchasing power; in reality, Widodo clearly hopes to avoid sacrificing popularity ahead of his re-election bid.” Ironically, he said, artificially low fuel prices end up creating inflation anyway, since people tend to then over-consume imported petrol, which further sinks the rupiah.

The subsidy may also imperil Indonesia’s public transport ambitions, said Jakarta-based energy policy researcher Lucky Lontoh. “Jokowi’s massive infrastructure development actually was started with a fuel subsidy reduction back in 2014, which freed some fiscal space needed to fund the infrastructure projects. More subsidies means the government will have less money to fund other development activities.”

Environmental Impact

Fuel subsidies are considered a regressive form of spending because their benefits are captured by people wealthy enough to drive and own vehicles, said Paul Burke, an economist at Australian National University who focuses on energy and transportation.

But they also aggravate traffic jams — including in cities like the notoriously traffic-choked Jakarta — air pollution, and oil dependence, said Burke, citing a recent paper he authored on the topic.

Burke said Indonesia’s substantial progress on electricity subsidies are a hopeful sign and possible roadmap for fuel subsidy reform.

“Over recent years, Indonesia has achieved substantial success in reducing electricity subsidies, by increasing some electricity tariffs to cost-reflective levels,” he said. “Poor households are among those that have been exempted from the reforms… [which] have made an important contribution to improving the efficiency of Indonesia’s electricity use. As electricity prices have increased, electricity use has shifted to a lower-growth trajectory. This has helped Indonesia to avoid the need to build too many expensive new power stations.”

In the fuel realm, Burke said a reform option that economists often suggest is a “fuel excise,” which is a tax on the sale of fuel and the opposite of a fuel subsidy. “Fuel excise would be a progressive form of revenue raising, would help to reduce pollution and traffic jams, and would help Indonesia reduce its budget deficit and fund key priorities.”

Fossil fuel subsidies have existed in Indonesia since its independence in 1949 and, per the International Energy Agency, accounted for nearly 20 percent of fiscal expenditure by the 1960’s. In that context, the reforms of modern-day Indonesia and the Jokowi administration are not inconsiderable: by 2014, about 3 percent of the GDP was spent on fossil fuel subsidies, and by 2016, after Jokowi’s initial spate of reforms, it was less than 1 percent.

But, due to consumer expectations, the political climate, and the unique challenges of the fuel industry — Indonesia both has a lot of natural resources itself and a burgeoning consumer class — the current subsidy apparatus may prove sticky for the near future. …

Air bags in some Hyundai and Kia cars failed to inflate in crashes and four people are dead. Now the U.S. government’s road safety agency wants to know why.

The National Highway Traffic Safety Administration says it’s investigating problems that affect an estimated 425,000 cars made by the Korean automakers. The agency also is looking into whether the same problem could happen in vehicles made by other companies.

In documents posted on its website Saturday , the safety agency says the probe covers 2011 Hyundai Sonata midsize cars and 2012 and 2013 Kia Forte compacts. The agency says it has reports of six front-end crashes with significant damage to the cars. Four people died and six were injured.

Electrical circuits

The problem has been traced to electrical circuit shorts in air bag control computers made by parts supplier ZF-TRW. NHTSA now wants to know if other automakers used the same computer.

On Feb. 27, Hyundai recalled nearly 155,000 Sonatas because of air bag failures, which the company blamed on the short circuits.Hyundai’s sister automaker Kia, which sells similar vehicles, has yet to issue a recall.

In a statement Saturday, Kia said that it has not confirmed any air bag non-deployments in its 2002-2013 Kia Forte models arising from “the potential chip issue.” The company said it will work with NHTSA investigators.

“Kia will act promptly to conduct a safety recall, if it determines that a recall would be appropriate,” the company said.

But a consumer complaint cited in NHTSA’s investigation documents said Kia was informed of a crash near Oakland in which air bags failed to deploy and a passenger was killed.

In October 2015, the complainant told NHTSA that a 2012 Forte was involved in a serious front-end crash that occurred in July 2013. A passenger was killed and the driver was injured. According to the complaint, Kia was notified, the air bag computer was tested and it was “found not to be working.”

Kia spokesman James Bell said he could not comment beyond the company’s statement.

Hyundai recall

In addition, no deaths or injuries were disclosed in Hyundai’s recall documents, which were posted by NHTSA in early March.

Hyundai spokesman Jim Trainor says the problem occurred in rare high-speed head-on collisions that were offset from the center of the vehicles. “It’s very unusual to have that kind of collision,” he said Saturday.

Dealers will consider offering loaner cars to owners until the problem can be repaired, he said. “We certainly would do everything we can to help our customers,” Trainor said.

Hyundai said in a statement that the air bag control circuitry was damaged in three crashes and a fourth crash is under investigation.

ZF-TRW said in a statement that it is prevented by confidentiality agreements from identifying other automakers that bought its air bag control computers. The company said it is working with customers and supports the NHTSA investigation.

According to NHTSA, Hyundai investigated and found the problem was “electrical overstress” in the computers. The company didn’t have a fix developed at the time but said it was investigating the problem with ZF-TRW. Hyundai does not yet have a fix for the problem but said it expects the Sonata recall to start April 20. The problem also can stop the seat belts from tightening before a crash.

In the documents, NHTSA said it understands that the Kia Fortes under investigation use similar air bag control computers made by ZF-TRW. The agency noted a 2016 recall involving more than 1.4 million Fiat Chrysler cars and SUVs that had a similar problem causing the air bags not to deploy. Agency documents show those vehicles had air bag computers made by ZF-TRW. …

Air bags in some Hyundai and Kia cars failed to inflate in crashes and four people are dead. Now the U.S. government’s road safety agency wants to know why.

The National Highway Traffic Safety Administration says it’s investigating problems that affect an estimated 425,000 cars made by the Korean automakers. The agency also is looking into whether the same problem could happen in vehicles made by other companies.

In documents posted on its website Saturday , the safety agency says the probe covers 2011 Hyundai Sonata midsize cars and 2012 and 2013 Kia Forte compacts. The agency says it has reports of six front-end crashes with significant damage to the cars. Four people died and six were injured.

Electrical circuits

The problem has been traced to electrical circuit shorts in air bag control computers made by parts supplier ZF-TRW. NHTSA now wants to know if other automakers used the same computer.

On Feb. 27, Hyundai recalled nearly 155,000 Sonatas because of air bag failures, which the company blamed on the short circuits.Hyundai’s sister automaker Kia, which sells similar vehicles, has yet to issue a recall.

In a statement Saturday, Kia said that it has not confirmed any air bag non-deployments in its 2002-2013 Kia Forte models arising from “the potential chip issue.” The company said it will work with NHTSA investigators.

“Kia will act promptly to conduct a safety recall, if it determines that a recall would be appropriate,” the company said.

But a consumer complaint cited in NHTSA’s investigation documents said Kia was informed of a crash near Oakland in which air bags failed to deploy and a passenger was killed.

In October 2015, the complainant told NHTSA that a 2012 Forte was involved in a serious front-end crash that occurred in July 2013. A passenger was killed and the driver was injured. According to the complaint, Kia was notified, the air bag computer was tested and it was “found not to be working.”

Kia spokesman James Bell said he could not comment beyond the company’s statement.

Hyundai recall

In addition, no deaths or injuries were disclosed in Hyundai’s recall documents, which were posted by NHTSA in early March.

Hyundai spokesman Jim Trainor says the problem occurred in rare high-speed head-on collisions that were offset from the center of the vehicles. “It’s very unusual to have that kind of collision,” he said Saturday.

Dealers will consider offering loaner cars to owners until the problem can be repaired, he said. “We certainly would do everything we can to help our customers,” Trainor said.

Hyundai said in a statement that the air bag control circuitry was damaged in three crashes and a fourth crash is under investigation.

ZF-TRW said in a statement that it is prevented by confidentiality agreements from identifying other automakers that bought its air bag control computers. The company said it is working with customers and supports the NHTSA investigation.

According to NHTSA, Hyundai investigated and found the problem was “electrical overstress” in the computers. The company didn’t have a fix developed at the time but said it was investigating the problem with ZF-TRW. Hyundai does not yet have a fix for the problem but said it expects the Sonata recall to start April 20. The problem also can stop the seat belts from tightening before a crash.

In the documents, NHTSA said it understands that the Kia Fortes under investigation use similar air bag control computers made by ZF-TRW. The agency noted a 2016 recall involving more than 1.4 million Fiat Chrysler cars and SUVs that had a similar problem causing the air bags not to deploy. Agency documents show those vehicles had air bag computers made by ZF-TRW. …

The pot revolution is alive and well in the state of Colorado where recreational cannabis has been legal since 2014. While the full impact of legal marijuana in Colorado has yet to be determined, what is clear is that cannabis has become a giant moneymaker for the state. And as Paula Vargas reports from Denver, women entrepreneurs — weed warriors, as some have called them — are leading the way. …

The pot revolution is alive and well in the state of Colorado where recreational cannabis has been legal since 2014. While the full impact of legal marijuana in Colorado has yet to be determined, what is clear is that cannabis has become a giant moneymaker for the state. And as Paula Vargas reports from Denver, women entrepreneurs — weed warriors, as some have called them — are leading the way. …

Britain should consider a limited extension to its exit process from the European Union if needed to ensure details of its future relationship with the

bloc are agreed, a committee of lawmakers said in a report.

Prime Minister Theresa May formally notified the EU of Britain’s intention to leave by triggering Article 50 of the membership treaty on March 29, 2017, setting the clock ticking on a two-year exit process.

Britain has said it wants to have the basis of a trade deal set out with the EU by October, but the Exiting the EU Committee said in a report published Sunday that deadline would be tight.

“In the short time that remains, it is difficult to see how it will be possible to negotiate a full, bespoke trade and market access agreement, along with a range of other agreements, including on foreign affairs and defense cooperation,” the committee said.

“If substantial aspects of the future partnership remain to be agreed in October, the government should seek a limited extension to the Article 50 time to ensure that a political declaration on the future partnership that is sufficiently detailed and comprehensive can be concluded.”

The report also said it should be possible to prolong, if necessary, the length of any post-Brexit transition that’s agreed upon by Britain and the EU.

Britain has said it is confident it can reach a deal on the transition period at an EU summit this month. It expects the transition to last around two years after its departure date, although the European Union has said it should be shorter,

ending on Dec. 31, 2020.

The Exiting the EU committee, made up of lawmakers from all the main political parties, also called on the government to present a detailed plan on how a “frictionless” border between Northern Ireland and the Republic of Ireland would work.

The Irish border is a key sticking point in negotiations between the U.K. and the EU, as Britain has said it wants to leave the customs union but does not want a “hard” land border with customs checks. …

A former midlevel employee of German industrial giant Siemens pleaded guilty Thursday of conspiring to pay tens of millions of dollars to Argentine officials to win a $1 billion contract to create national ID cards.

Eberhard Reichart, 78, who worked for Siemens from 1964 to 2001, appeared in federal court in New York to plead guilty to one count of conspiring to violate the anti-bribery Foreign Corrupt Practices Act and to commit wire fraud.

Reichart was arraigned last December in a three-count indictment filed in December 2011 charging him and seven other Siemens executives and agents with participating in the decadelong scheme, the Justice Department said Thursday.

The men were accused of conspiring to pay more than $100 million in bribes to high-level Argentine officials to win the contract in 1998.

As part of his guilty plea, Reichart admitted in court that he engaged in the bribery conspiracy and that he and his co-conspirators used shell companies to conceal the illicit payments to Argentine officials.

The Argentine government terminated the contract in 2001, but the Siemens executives “sought to recover the profits they would have reaped” through an illicitly obtained contract, said Preet Bharara, former U.S. attorney for the Southern District of New York, in 2011.

“Far too often, companies pay bribes as part of their business plan, upsetting what should be a level playing field and harming companies that play by the rules,” acting Assistant Attorney General John Cronan said Thursday.

In 2008, Siemens pleaded guilty of violating the Foreign Corrupt Practices Act in connection with the Argentine bribery scheme, agreeing to pay the Justice Department and Securities and Exchange Commission $800 million in criminal and civil penalties.

The company paid the German government another $800 million to settle similar charges brought by the Munich Public Prosecutor’s Office.

The Foreign Corrupt Practices Act bars U.S. companies and foreign firms with a presence in the U.S. from paying bribes to foreign officials.

Last year, 11 companies paid just over $1.92 billion to resolve charges brought under the anti-bribery law, according to data compiled by the FCPA Blog. …

A former midlevel employee of German industrial giant Siemens pleaded guilty Thursday of conspiring to pay tens of millions of dollars to Argentine officials to win a $1 billion contract to create national ID cards.

Eberhard Reichart, 78, who worked for Siemens from 1964 to 2001, appeared in federal court in New York to plead guilty to one count of conspiring to violate the anti-bribery Foreign Corrupt Practices Act and to commit wire fraud.

Reichart was arraigned last December in a three-count indictment filed in December 2011 charging him and seven other Siemens executives and agents with participating in the decadelong scheme, the Justice Department said Thursday.

The men were accused of conspiring to pay more than $100 million in bribes to high-level Argentine officials to win the contract in 1998.

As part of his guilty plea, Reichart admitted in court that he engaged in the bribery conspiracy and that he and his co-conspirators used shell companies to conceal the illicit payments to Argentine officials.

The Argentine government terminated the contract in 2001, but the Siemens executives “sought to recover the profits they would have reaped” through an illicitly obtained contract, said Preet Bharara, former U.S. attorney for the Southern District of New York, in 2011.

“Far too often, companies pay bribes as part of their business plan, upsetting what should be a level playing field and harming companies that play by the rules,” acting Assistant Attorney General John Cronan said Thursday.

In 2008, Siemens pleaded guilty of violating the Foreign Corrupt Practices Act in connection with the Argentine bribery scheme, agreeing to pay the Justice Department and Securities and Exchange Commission $800 million in criminal and civil penalties.

The company paid the German government another $800 million to settle similar charges brought by the Munich Public Prosecutor’s Office.

The Foreign Corrupt Practices Act bars U.S. companies and foreign firms with a presence in the U.S. from paying bribes to foreign officials.

Last year, 11 companies paid just over $1.92 billion to resolve charges brought under the anti-bribery law, according to data compiled by the FCPA Blog. …

White House trade adviser Peter Navarro said Thursday that President Donald Trump would soon consider new punitive measures against China for its alleged “theft” of intellectual property.

U.S. officials, according to news accounts, are considering imposing as much as $60 billion in annual tariffs against Chinese information technology, telecommunications and consumer exports to the U.S. in an effort to trim its chronic annual trade deficit with Beijing by $100 billion. Last year, the U.S. says it imported Chinese goods worth $375 billion more than it exported to China.

“In the coming weeks, President Trump is going to have on his desk some recommendations,” Navarro told CNBC. “This will be one of the many steps the president is going to courageously take in order to address unfair trade practices.

“I don’t think there’s a single person … on Wall Street that will oppose cracking down on China’s theft of our intellectual property or their forced transfer,” Navarro said.

The new tariffs and other measures would be in addition to the 25 percent tariff on steel imports to the U.S. and 10 percent levy on aluminum that Trump announced last week, some of which affect China.

​At a political fundraiser Wednesday, Trump attacked several trading partners for the billions of dollars in trade surpluses they have built up against the U.S. He contended that China had become an economic power — the world’s second biggest economy — because of its trade surplus with the United States.

China warned it would likely retaliate against any new tariffs the U.S. imposes.

Foreign minister spokesman Lu Kang said, “History has proven that a trade war is in no one’s interest.”

He said that “if an undesirable situation arises, China has the intention of safeguarding its legitimate rights.”

Trump’s new tariffs on metal imports have led in recent days to volatility on U.S. stock exchanges, with wide day-to-day swings of hundreds of points in stock indexes.

But Navarro said the U.S. can impose the tariffs in a way that can be good for the American people and good for the global trading system. We can do this in a way that is peaceful and will improve and strengthen the trading system. … Everybody on Wall Street needs to understand: Just relax.” …